IASbaba’s Daily Current Affairs – 4th Oct 2017

SECURITY

Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Defence reforms- Important guidelines to be followed

Background:

Recently, a series of defence reforms which will result in the ‘redeployment and restructuring of approximately 57,000 posts of officers/JCOs/ORs and civilians’ were announced. The reforms are aimed at ‘enhancing Combat Capability & Rebalancing Defence Expenditure of the armed forces with an aim to increase the “teeth to tail ratio”.’ Initial approval has been given for 65 of a total of 99 recommendations pertaining to the Indian Army. This will begin with the closure of 39 military farms in a time bound manner. The reforms are expected to be completed by December 31, 2019.

Security threats and challenges:

There are clearly discernible security threats and challenges that continue to adversely affect India’s security. These are a result of unresolved borders and continuing inimical actions by adversaries. Given the history of four major wars fought by India and its adversaries, the country has no option but to deter a future war and, in case deterrence fails, remain prepared to defend its sovereignty and territorial integrity.

Security beyond borders:

The security forces must build and retain the capability of protecting India’s core national interests beyond its borders. These include:

The safety of Indians working in regions like West Asia.

Protection of economic and energy supply lines and assets.

Contribution to international responsibilities like United Nations (UN) peacekeeping and anti-piracy operations.

Humanitarian assistance and disaster relief (HADR) missions.

Sub-conventional challenges:

In addition to the external threats and responsibilities are sub-conventional challenges like terrorism and insurgency, which have necessitated the active employment of a substantially large force, both army and central police. Some of these deployments are also focused towards Pakistan that manifests itself in a variety of forms to include terrorism. Further, challenges like economic and cyber warfare go beyond the traditional realm of security. All of these necessitate the deployment of “soldiers” with different skill-sets to fight the adversary in these non-traditional domains. War, as a result, is increasingly assuming hybrid forms, and has been waged successfully by countries like Pakistan and China against India for a number of years. The threat presented by Fake Indian Currency Notes (FICN) and cyber-attacks on security and critical infrastructure have therefore become a challenge for trained professionals fighting the adversary, often unseen and unheard by a vast majority of Indians.

Thus, the nature of threats and challenges has undergone a transformation in the recent past and transcend the traditional notions of security. This necessiates that the instruments of the state required to fight the “enemy” also need to diversify, given the means and tools that an adversary like Pakistan is employing.

Issues:

The existing concept of defence is individual service centric, where each service largely plans and operates within its particular silo.

Similarly, the counter terrorism approach too remains distinct to each arm of the state, with cooperation occurring at best at the functional level to achieve a basic level of cohesion.

The lack of unity of effort and consequently a failure to achieve economy of effort.

The lack of joint planning, joint training, and joint equipment (which includes procurement) affects both efficiency and economy.

The fight often tends to centre around allocation of funds and numbers of senior ranks that must at least be protected if not enlarged, rather than finding the optimum solution for the challenge at hand.

Way ahead:

When this reality is transposed upon the reforms being effected, it indicates the direction that security planning needs to take.

Even as the enhancement of the teeth to tail ratio remains critical, its implementation without addressing the simultaneous challenge of services functioning in silos will yield only limited benefits. The decision to cut down numbers must be linked with synergised efficiencies amongst the Ministry of Defence (MoD), affiliated Public Sector Undertakings (PSUs), Defence Research and Development Organisation (DRDO) and the three services.

The streamlining of logistics initiated will remain sub-optimal unless the exercise is undertaken as a tri-service, ordnance factory and quality assurance related endeavour. Even as some areas will continue to remain distinct, greater efficiencies and economy should be created through greater cohesion. The cutting down of numbers from amongst the logistic support elements has to be accompanied by joint services establishments to achieve economies of scale.

The ongoing reforms cannot be limited to the three services alone. It must also include the MoD as well as the entire national security architecture with a view to building an overarching organisation that can cohesively address the challenge of hybrid wars. The emergence of threats in cyber and space, should therefore become the basis for creation of a cyber and space commands, with a capability of both defensive and offensive actions. This too is a field which relates to the larger concept of security, rather than the one represented by the three services alone.

Reforms must be holistic and homogenous. Any attempt at piecemeal implementation is unlikely to yield the desired benefits and dividends.

Past experience with defence reforms has clearly indicated that success has only been achieved when reforms benefit from the professional advice of the services and are backed by the willingness of the political establishment to enforce implementation. The existing resistance within the services and the civilian bureaucracy is unlikely to allow reforms that affect their status and the size of their establishments. It is for the political leadership to take the onus and responsibility of leading such an effort. It is also for political leaders to outline national security concerns and envisaged capabilities, for which the security agencies must thereafter provide a blueprint.

The success of defence reforms hinges on the availability of financial resources. The scope and size of reforms must be tailored to the needs of specific modernisation targets, even if these are achieved sequentially rather than concurrently.

The armed forces need a structure and size which enables them to fight a faster paced, shorter and more efficient limited war. This demands a very different equipment profile, as also an efficient logistical support base. Since the funding for modernisation is likely to remain at existing levels of approximately 1.55 per cent, as a percentage of GDP, the obvious conclusion is to re-prioritise resources towards the challenges actually being faced. This includes limited wars in the conventional domain, terrorism, and non-traditional security challenges like HADR and cyber attacks.

The government should take up for implementation the recommendations that have been successively made by the Arun Singh, Kargil Review and Naresh Chandra Committees. It is equally important to assess what remains pending for implementation because the seeds of major military change might just be found amongst recommendations that are yet to be taken up for implementation.

Conclusion:

The above guidelines must become the basis for undertaking major structural changes of the kind that has been visualised. While pushing through the ongoing reforms, the government must assess the pitfalls of similar reforms in the past. The opportunity to transform the national security structure does not present itself often.

Connecting the dots:

Recently the government has introduced certain defence reforms. What are these reforms. Discuss the major threats and security challenges faced by India and on what bases defence reforms should be carried out.

ECONOMICS

Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

Revitalizing PPPs

Background:

India’s infrastructure deficit continues to persist despite the relative catch-up in recent years. The Asian Development Bank, in its report titled “Meeting Asia’s Infrastructure Needs”, has estimated that $4.36 trillion is needed to fix India’s infrastructure deficit by 2030. More than $300 billion of spending every year is required for the next 13 years, as compared to recent spend rates of $120 billion per year, much of this has to come from the private sector.

Difficult circumstances:

Weakening economic growth and the debt overhang problem have constrained both the capacity and flow of private investment in asset creation.

Even the successful awards in roads, rail, airports and other infrastructure segments have been mired in implementation challenges, affecting the private sector’s capacity to invest afresh.

Broad estimates indicate that the private arm of public-private partnerships (PPPs) will need to contribute at least $90 billion every year for the next 10 years, entailing a potential borrowing of at least $55-60 billion a year. That is quite a large sum for the stretched balance sheets of lenders and investors.

Limited capability of the government:

The difficult circumstances have prompted the government to step in and increase public expenditure on infrastructure but by all counts the private sector will need to play a key role. India’s debt-to-gross domestic product ratio is relatively high (65%) and with already stretched finances, the government’s ability to fund new assets will remain constrained.

Revitalizing PPPs:

The government needs to hit the reset button on PPPs to address core issues. Three aspects need immediate attention—

Restructuring PPP contracts through an objective process:

Many of the base contracts were drawn up in a different era. That has changed, with disruptions in many forms overtaking every sector. It has become impossible to foresee factors that would have a significant impact on the performance over a long-term contract period.

Way ahead:

The Kelkar committee recommendations in 2015 are worth reflecting on. These are not matters of negotiation of terms; deep changes and redrafts of concession contracts would be needed based on evolving asset risk profiles, market conditions, technology impacts, investor appetite and bankability.

Broadening and deepening access to long-term credit:

On credit, the situation has aggravated sharply, with the non-performing assets (NPAs) of domestic lenders mounting.

While the international credit and financing market is an avenue, high-quality sponsors and assets remain few.

Poor project preparation also remains an issue. Without adequate preparedness and appropriate risk allocation, large capital pools remain out of access.

Bonds have worked very well overseas as a source of project finance, given their relative advantages over commercial bank debt, but the corporate or municipal bond market in India is still not deep enough to support long-term credit and refinancing commitments, unless backed by sovereign guarantees, which are difficult to come by.

High project risks, poor entity rating and regulatory uncertainties also make yield-based structures difficult to implement.

Way ahead:

Market making assumes greater significance in this context. Financial institutions like India Infrastructure Finance Co. Ltd and the National Infrastructure Investment Fund (NIIF) should lead the market-making role by securing foreign capital and providing equity support to critical infrastructure projects.

Tightening procurement processes and timelines:

Elongated timelines due to lack of institutional capacity in the project-award process have been hurting.

Single-window clearance has rarely worked and inability to resolve disputes during the implementation stage quickly has been a big deterrent for high-quality investors.

The whole value-for-money principle that favours PPPs over traditional public sector procurement is defeated with time and cost overruns resulting from delayed pre-development and procurement activities.

As a case in point, the Navi Mumbai International Airport (NMIA) transaction took nearly a decade to complete from the time the first master plan was prepared and three years to identify the successful bidder after the tenders were invited.

Way ahead:

Experience reveals that strong leadership can make a big difference. The Delhi Metro is a good example of how projects can and should be implemented. It had to deal with all kinds of issues typical of large projects—land acquisition, utility shifting, rehabilitation of displaced land owners, migrant workers, construction and engineering challenges, procurement risks and multiple stakeholders—and still came out on top. The same quality of leadership is required for all mega projects, whether implemented by the government or its agencies or by the private sector, and needs to be nurtured and encouraged.

Connecting the dots:

The Asian Development Bank, in its report titled “Meeting Asia’s Infrastructure Needs”, has estimated that $4.36 trillion is needed to fix India’s infrastructure deficit by 2030. In this light dizcuss the importance of revitalizing PPPs and also how it can be done.

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